Supply chain bottlenecks are beginning to resolve as consumer spending returns to a more normal mix of goods and services.
Send the news: The New York Fed’s Global Supply Chain Pressure Index (GSCPI) fell for the third straight month in July, reaching its lowest point since January 2021.
Why it matters: We’ve been dealing with one supply chain crisis after another since the pandemic has rocked the global economy — and it’s contributed to runaway inflation.
By the numbers: The GSCPI’s downward movement, which is 1.84 points above normal levels – below an all-time high of 4.32 in December – suggests that products are moving slowly more freely through the economy.
- “We expect most retailers to reduce inventory purchases over time given lower demand expectations,” Fitch Ratings reported Monday. “This should support the eventual stabilization of margins if inventory levels are correct and should also alleviate some supply chain bottlenecks.”
Looking back: The pandemic historically shifted spending from services to physical goods, creating a demand that manufacturers, logistics companies and retailers were unprepared for.
- They’ve been trying to catch up ever since.
Quick take: The return to services has been going on for months, most recently exemplified by hotel chains Marriott and Hilton who reported soaring revenues in recent weeks.
- That relief from the pressure on supply chains is already being felt by retailers.
What they say: In consumer electronics, inventories have “not only caught up,” but may be moving toward “a surplus situation,” Donald Charron, CEO of Kimball Electronics, said on a conference call Friday.
- On the apparel front, Under Armor CFO David Bergman said on Wednesday they are now seeing signs that supply chain disruptions can “balance from this point” through the end of the year.
The other side: Port backups – which have caused many of the problems in the supply chain – remain significant, making access to certain goods more difficult. And the global shortage of semiconductor chips, key to the shortage of new vehicles, is expected to take years to resolve as companies like Intel build new onshore factories.
- “There’s less freight flowing,” Steve Ferreira, CEO of Ocean Audit, told Axios, “but there’s still so much backup.”
It comes down to: You may still want to plan ahead on your holiday shopping list. But the situation seems to be heading in the right direction.